Ford Reaches Tentative Agreement for New Contract with UAW

Ford has announced that it has reached a tentative agreement with the United Auto Workers (UAW) union on a new labour contract between the two parties. The UAW's National Ford Council, made up of the union local heads, voted to approve the new contract changes yesterday, and will now send the matter to the rank and file membership for a ratification vote later this week and over the weekend. Exact terms of the contract changes were not published, according to several news outlets, as Ford states that it does not publish such things until after the ratification vote has taken place. But some things are known thanks to sources close to the negotiations: Ford will get a no-strike clause for the duration of the contract (expected to last as long as 2015), the ability to freeze entry-level wages, and the flexibility to reassign workers into more team-like structures that allow more variation in the jobs hourly workers are required to perform. In return, the UAW receives commitments for future product beyond the currently announced vehicles, and workers will receive a US$1,000 bonus in the spring based on productivity and quality gains.

The changes would modify the existing contract that was signed in 2007, itself a transformational document that dramatically reduced Ford's costs. That four-year document was modified in February 2009, when the membership voted to modify the terms of Ford's Voluntary Employee Beneficiary Association (VEBA) to allow for different payment methods, saving Ford nearly US$500 million. Ford has also scored several work rule concessions as well, saving it another US$500 million over the last two years. The new contract is meant to establish parity with Chrysler and General Motors (GM), which both received dramatically improved contracts with the UAW after a trip through bankruptcy earlier this year. Ford has not gone through the bankruptcy process, and as such has not had the benefit of the courts to rid itself of a lot of unwanted debt or capacity. "[This] would help Ford improve its current and long-term competitiveness in the United States," Joe Hinrichs, Ford's head of labour relations, said in a statement released yesterday morning.

Outlook and Implications

It is a positive sign that the union leadership has voted to accept the latest contract changes, as frankly Ford needs these changes in order to maintain cost competitiveness with its cross-town rivals, GM and Chrysler. But it may be a tough sell for the automaker and the union bosses to get through the rank and file membership. Because Ford did not enter Chapter 11 bankruptcy like GM and Chrysler, it is generally viewed as being stronger than the other two financially—but this may be somewhat misleading now. Saying that Ford is in better shape than GM or Chrysler does not take into account what the effects of the bankruptcy process has done for the other two automakers. GM and Chrysler now have better contracts with lower labour costs, significantly reduced debt loads, much less in the way of overcapacity, and have both basically restructured themselves to be profitable (or at least break even) at market sales rates of about 10 million units. Ford did not go through bankruptcy, so any improvements to its cost structure have come through slower, more deliberate means such as a massive debt-to-equity swap earlier this year that eliminated nearly a third of Ford's outstanding debt, but which diluted company shares significantly. Where Ford is stronger is in terms of its public image and market share; it has a new product cadence as well that will serve it very well as it rebuilds its brands in the wake of the devastating recession. But in order for Ford to help make its cost structure as equal as possible to Chrysler and GM, it simply needs to have these latest concessions. But with Ford's fortunes supposedly on the upswing, convincing the beleaguered union members that they need to accept more concessions will be a tough sell.